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Issues Involved:
1. Addition of Rs. 2,50,000 under the head "other sources." 2. Addition of Rs. 11,11,716 under the head "other sources." Issue 1: Addition of Rs. 2,50,000 under the head "other sources." During the year ending on 31st March 1986, relevant to the assessment year 1986-87, the Assessing Officer (AO) noticed unrecorded tax remittances by the firm. The assessee explained that the amount was part of a disclosure made by the firm, managed by Shri R. Bharathan. However, the AO was not satisfied and treated the remittances as unexplained investments. The assessee's books showed an opening balance of Rs. 2,50,000, explained as derived from a cash balance, lease rent, and sale of closing stock. The AO rejected this explanation, citing lack of evidence for lease rent payment, sale of closing stock, and continuity of funds. Initially, these additions were confirmed in appeal, but the Tribunal restored the issue to the AO for fresh consideration. Upon reconsideration, the AO upheld the additions, noting the circumstances of the firm's settlement for an additional income of Rs. 41 lakhs for the assessment year 1983-84 and the subsequent distribution of Rs. 31,70,434 among the partners. The AO concluded that the balance amount of Rs. 9,29,566 should have been spent by the partners, implying it was not available for tax payments. The Tribunal found the AO's and CIT(A)'s approaches erroneous, stating that the balance amount of Rs. 9,29,566 must have been kept outside the books and utilized for tax payments. Given the short interval between the surrender of additional income and tax payment, it was reasonable to conclude that the balance amount was used for tax payments. Consequently, the addition of Rs. 2,50,000 was deemed correct as it fell within the previous year relevant to the assessment year 1986-87. Issue 2: Addition of Rs. 11,11,716 under the head "other sources." The AO noticed unrecorded tax remittances totaling Rs. 11,11,716. The assessee explained that the amount was managed by Shri R. Bharathan, who should have explained the source. However, the AO found no evidence supporting the claim that the funds came from accounts of Bharathan, his wife, and his daughter. Thus, the AO treated the amount as unaccounted funds of the firm. On appeal, the first appellate authority held that no funds would have been left by April 1985 after explaining various investments. The assessee failed to prove the availability of cash on hand or that payments were made from the running business. Consequently, the authority upheld the AO's addition of Rs. 11,11,716 as unaccounted income for the assessment year 1986-87. The Tribunal, however, found that out of Rs. 41 lakhs assessed for the assessment year 1983-84, only Rs. 31,70,434 was distributed among the partners. The balance amount of Rs. 9,29,566 was presumed to be kept outside the books and utilized for tax payments. The Tribunal criticized the AO for not examining Bharathan, who managed the firm's affairs, and drew an adverse inference against the firm without proper examination. The Tribunal concluded that the balance amount was available for tax payments and deleted the addition of Rs. 11,11,716. Conclusion: The appeal was partly allowed. The addition of Rs. 2,50,000 was upheld as it fell within the relevant assessment year, while the addition of Rs. 11,11,716 was deleted based on the probability that the balance amount of Rs. 9,29,566 was utilized for tax payments.
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